By Jerry S. Sobelman, CPA
Single specialty networks are a viable option for specialists to exercise more control over their future as managed health care grows. A strong network can negotiate effectively with health plans or primary care groups for their share of the HMO dollars on a discounted fee or capitated basis.
Many specialists have been known for their independence and, for the most part, practiced alone or in small groups. They have relied on primary care physician referrals, but were able to maintain a substantially higher level of income because of skill, repetition and because demand for their services was strong relative to the supply of qualified specialists. The development of managed care organizations (MCOs) has changed that environment by substantially reducing access to specialists. As a result, there is an excess of specialists in most markets, which is growing as MCOs control a greater share of the market. Primary care physicians have gained substantial control over MCO dollars in their role as gatekeeper and are limiting access to specialists.
The fee-for-service financial incentives rewarded physicians for performing procedures. Now under capitation (fees fixed based on membership), financial incentives are rewarded to physicians who emphasize preventive medicine and perform procedures only when necessary.
What Do MCOs Look For?
A leading physician of a successful single specialty network was asked why he had been so successful in obtaining contracts with MCOs. He answered, “We decided to become the leader by developing medical protocols and procedures to provide high quality services at a lower cost. We attended seminars on managed health care, and then let the MCOs know that we were interested in contracting with them for patients. We had quick success because other competing specialists were passive.”
MCOs prefer to contract with groups or networks that are experienced in managed health care and have a network of specialists that can provide coverage for a broad geographic area. Specialists that do not experience a wide variety in practice patterns are best for network development. It is much easier for the MCO to negotiate and manage one contract for a large group of patients than to develop a network with numerous individual physicians.
If there are more physicians than your market will support as managed health care grows, you should form a network before others in your specialty capture these patients. If your referral sources are joining networks or health plans that you have not contracted with, it is time to act. It is critical that you dovetail with your referral physicians.
Single specialty MSOs (management service organizations) have developed around the country similar to the primary care MSOs that have been prominent in the press and on Wall Street. Some of these networks have grown to include physicians in numerous cities and states that have attracted millions in capital to fund growth of the network.
Issues To Consider Before Forming A Network
• Loss of Control. Are you ready to give up your independence and be a team member in a large organization where you have a vote, but cannot control the actions of the group? Remember, you are losing control over your patients now to the MCOs.
Medical protocols will be established by the medical director, with a vote from the physicians, and administrative decisions will be made by a professional administrator, with approval from the board of directors. In order for the network to be successful, decisions must be delegated so that the physicians can focus their time on health care.
• Shared Administrative Resources and Costs. As an individual practitioner, you cannot afford the experienced administrator required to negotiate contracts, market the practice and develop the technology required to compete for patients. A network can develop a larger population of patients to share the risks of capitation contracts and perform outcomes research. Common utilization review and quality assurance standards can be developed and expertise can be shared by members of the network. Economies of scale can be achieved. Development of a network will be expensive and may require substantial capital before the benefits are realized. Administrative costs include network development, marketing, contract negotiations, legal and accounting issues and computer hardware and software needs. Therefore, it is critical that the founders commit the required time and capital to ensure success.
• Antitrust Concerns. No one should go into a network expecting to control the fees paid by patients or MCOs. As the percent of the market controlled by the network grows, the risk of antitrust increases. An experienced attorney can guide you through this process—usually this law will not limit the growth of the network.
• Marketing Leverage. Networks that obtain name identification and a reputation in the community as the leader in providing quality health care will fare best in the changing health care environment, with its focus on larger providers. The ability to provide a constant level of quality and service to a large area is becoming very important to health care providers, as it has for years in business ranging from food service to retailing.
Consider Your Future
Analyze your practice to determine which health plans your patients have joined. Check with the health plan to see if changes in their methods of contracting are being considered. Talk to your referral sources to see if they are considering any changes in contracts which could affect their ability to refer patients to you.
It is critical that you act early. If you wait until your cash flow has been affected by lost patients, irreparable damage may have already occurred to your practice.
Jerry S. Sobelman, CPA, is a Principal of Margolis & Company P.C. Health care Services Group.